Investment Interest Expense: A Separately Stated Item?

Whether investment interest expense is a separately stated item is a question that has been asked on Reddit. The answer given by one user is that investment interest expense is a separately stated item that flows through to the partners. However, another user states that the answer is that it is ordinary.

Investment interest expense is a separately stated item for partners

For example, if you have a loan to run your business, your interest expense is considered ordinary. However, if you have an investment business, your interest expense will depend on how those expenses are used or sourced (e.g. equity, loan, etc.). In this case, the interest expense would be a separately stated item.

It is important to note that the treatment of interest expense as a separately stated item may vary depending on the specific context and jurisdiction. For instance, one source mentions the Canadian context, where interest expense is treated as an ordinary item.

Therefore, while investment interest expense is generally considered a separately stated item for partners, there may be exceptions or variations depending on the specific circumstances and tax regulations in different countries or regions.

Investment interest expense is deductible

Investment interest expense is a separately stated item that flows through to the partners. This may be deductible by the partner, depending on investment income limitations at the partner level.

If you have a normal business interest expense, for example, if you took out a loan to run your business, then this is an ordinary expense. However, if you have an investment business, your interest expense will depend on how those expenses are used and from where they originate (for example, equity or loan). This will be a separately stated line 13H.

Interest expense can be assumed to be like mortgage interest, which is deductible. If you have an investment business, your interest expense will depend on how those expenses are used and where they originate.

If you are unsure about whether your investment interest expense is deductible, it is best to consult a tax professional or accountant for advice specific to your situation. They will be able to advise you on the relevant tax laws and regulations that apply to your business and help you understand how to minimise your tax liability.

Interest expense is ordinary for S Corps

If your S-Corporation's only assets are those held for use in the regular course of business, then you will be able to fully deduct your interest expense against your S-Corporation income. However, if the S-Corporation is involved in its own investing activities, it gets more complicated.

For example, let's say the S-Corporation has Cash of $10,000, Equipment of $20,000, Accounts Receivable of $5,000, and a Note Receivable of $5,000. The Equipment has an outstanding loan of $10,000. In this case, you would need to break down these net asset values into regular line-of-business assets and investment assets.

Interest expense is like mortgage interest, which is deductible.

Interest expense is deductible

Interest expense is a separately stated item that flows through to the partners. Based on investment income limitations at the partner level, this may be deductible by the partner. For instance, if you have a mortgage, the interest expense is deductible.

In the context of an S Corp, there seems to be conflicting information. One source states that interest expense is considered ordinary for an S Corp, while another source suggests that interest expense is a separately stated item for an S Corp.

Therefore, it is important to consider the specific context and nature of the interest expense when determining whether it is deductible and how it should be treated for tax purposes.

Interest expense depends on how it is used

In the case of an S Corp, the answer is that interest expense is ordinary. However, this may depend on the specific context and there is some confusion around this.

In Canada, interest expense is a separately stated item. This means that it flows through to the partners and may be deductible by them, depending on investment income limitations at the partner level.

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